Yelp.com Stands Accused of Acting Like a "Modern-Day Mafia"

Atif Mehana came to the United States from Egypt two decades ago. The short, clean-shaven 58-year-old spent more than a decade selling seafood to tourists on Miami's bayfront. He saved enough to open a second eatery in 2008.

But now he's broke.

Who's to blame? He says Yelp.com, the megapopular website that allows users to rate and discuss thousands of businesses from Los Angeles to London. Cult-like followers and insistent ad reps conspired to ruin him.

"I want them to fix the damage they did to my life," he says. "I'm out my entire life savings. I lost $185,000, and I have a mortgage to pay."

Mehana claims Yelp, which averages more than 30 million visitors every month, deleted positive reviews and highlighted negative ones in a behind-the-scenes campaign to force him to buy advertising. His story has been echoed around the nation since February 23, when a Long Beach animal hospital sued Yelp, charging "extortion." Since then, hundreds of firms have claimed that the San Francisco company tried to extort money for ads. Their complaints have drawn coverage across the English-speaking world, from the Wall Street Journal to England's Guardian.

Yelp has vehemently denied those claims, noting that ad reps have no power over placement of reviews. Yet on April 5, the company acknowledged the issue. It added links to deleted comments and took away paying members' ability to place positive evaluations atop their profiles. "[There's] no connection between advertising and content," said Jeremy Stoppelman, one of the company's two überhip founders.

But that move failed to placate Yelp haters — including scores who claim to have been victimized like Mehana. They say the changes are just window-dressing. What's more, the list of plaintiffs against Yelp is growing, says Jared Beck, one of four lawyers who filed the suit. So far, ten businesses have signed on. And more than 500 proprietors have called to report chicanery by Yelp.

"Now we hope we'll get wholesale changes to Yelp's business practices," Beck says.

Yelp was founded in 2004 by two ambitious PayPal employees: the Harvard-trained Stoppelman and Russell Simmons, a software genius. They launched the site around the same time Facebook began sweeping through college campuses and tapped into the hunger for user-generated content.

The company, which has yet to turn a profit despite astounding popularity, created profiles for businesses from restaurants to drugstores to car washes and then allowed users to post reviews and ratings. By 2008, it had expanded to more than a dozen U.S. cities, Canada, and the British Isles. Last year, it topped $30 million in revenue. In December, Stoppelman and Simmons even rejected a $500 million buyout offer from Google.

But in February 2009, East Bay Express, an alternative weekly newspaper in Oakland, California, reported six local business owners' complaints that Yelp sales reps tried to strong-arm them into "memberships" of $300 or more a month. Beck and Gregory Weston, a former Harvard Law School classmate from San Diego, filed suit against the company. They said it would become a class-action, though at first there was only one client: Dogs and Cats Animal Hospital in Long Beach. Three weeks later, Beck added nine more businesses, including a bakery in Chicago, an appliance repair service near San Francisco, and a restaurant in Washington, D.C.

"All these people who are running their own businesses are taking the time to call us up and tell us their stories," Beck says. "And they all line up."

When Stoppelman announced the changes to Yelp's business model earlier this month, many observers painted the response as throwing in the towel. "Yelp Surrenders Payola War, Loses Easiest Shot at Profit," Gawker crowed.

Bob Gutgsell is skeptical. He has worked for two decades in San Carlos, wedged between San Francisco and San Jose, to build a niche repairing expensive appliances. He works on the kind of high-tech imports many repair companies won't touch.

About two years ago, Gutgsell found an angry review on Yelp and responded online to try to right the problem. Soon a Yelp sales rep phoned. "The lady was sincere and cordial, but I didn't like the business model," Gutgsell says. "It didn't seem fair to me." She called repeatedly. He politely declined each time. Then, he says, positive reviews began disappearing and negative ones crept up his profile. He's still doing reasonably well financially, but he decided to join Beck's suit.

"This is about the principle. I'm not in it for the money," he says. "What I do want is to see them shut down entirely. That might not happen, but certainly we could see some legal standards set."

Across country, in Somerville, Massachusetts, Grover Taylor first ran afoul of Yelp early last year, soon after he opened Eat at Jumbo's, an eatery catering to MIT students.

The Vermont native began receiving phone calls from a sales rep named "Art," who promised he could remove bad reviews for a $500 membership fee. Taylor responded that Jumbo's ran on word of mouth, so he couldn't afford it. Art threatened that bad reviews would be highlighted and good ones would disappear. That's exactly what happened.

"They're the modern-day Mafia. Maybe they're not holding a gun to my head, but they're playing the same game," says Taylor, who is also a plaintiff in the lawsuit. "It's too late for policy changes to help out. I just hope all this negative publicity finally tarnishes the company."